CHICAGO—Self-storage buildings have mushroomed across the country since the 1970's. That stupendous growth has many questioning when institutional investors will give the sector the same attention, and money, allocated to burgeoning sectors like student housing or medical office buildings.
“Self-storage has been such a proven commodity year-after-year,” says Marc A. Boorstein, a principal of MJ Partners Real Estate Services. As reported in this week's GlobeSt.com, the Chicago-based firm recently released its “Self Storage Market Overview, First Quarter 2013,” an analysis of self-storage companies' recent earnings results, operations performance and trends within the industry.
“Self-storage is a life need,” Boorstein adds. The endless cycles of divorce, new children, changing employment and other factors impact everyone and change how much space they need. “It's not only recession-proof, it's in better shape than ever.”
Many of the largest companies have posted enviable results. Public Storage Inc., for example, which has over 2,000 locations in the U.S. and Europe, just posted a revenue increase of 5.4% over last year's first quarter. Furthermore, their same-store net operating income grew by 9.5% and occupancy ticked up from 90.8% to 92.4%.
But without a full buy-in from major institutional investors, self-storage firms can experience difficulty securing development funds. Currently, only about 300 new sites get started each year, as opposed to about 2,600 per year during the run-up to the onset of the recession.
“One thing holding self-storage back is a lack of institutional information,” Boorstein adds. “There is not one go-to source of information,” something vital for any major investor thinking about allocating a portion of their funds to a specific sector.
MJ Partners has attempted to get the conversation started by publishing its market overviews. However, the self-storage sector is highly complex, with thousands of operators, and it will probably take more analysts with more resources to fully understand the market.
“There's lots of Mom and Pop shops,” Boorstein says. The top four operators only have about 10% of the sector, which has about 50,000 sites, and tracking all this will involve constant surveying by a large staff.
Reis, Inc., a provider of commercial real estate market information, has stepped up and begun analyzing the industry for potential investors. The firm provides updated trends and forecasts of rent, vacancy, and inventory for self-storage just as they do for the apartment, office, retail and warehouse/distribution markets in up to 275 metropolitan areas and more than 6,300 markets and segments.
“This is a nationally-recognized company that is respected on other property types,” Boorstein says. He hopes their involvement gets other analysts to jump in and eventually boost confidence to the point where self-storage developers can get construction financing.
And Boorstein says there is a lot of information potential investors need. “The management for these facilities has gotten so much more sophisticated.” After years of analysis and testing, for example, many of the self-storage operators discovered how to properly calibrate raising their tenants' rent over time and still keep their business. The technique, now widely-adopted, practically ensures profitable operations, he says. “That's probably the biggest secret in the industry.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
